Yu Ben Meng is returning to CalPERS as chief investment officer at a turbulent time.

The CEO who hired him, Marcie Frost, is embroiled in a controversy over potential misrepresentations about a college degree. And 25 investment staff positions need to be filled, including the heads of private equity and fixed income.

Mr. Meng is now deputy chief investment officer of China's $3.2 trillion State Administration of Foreign Exchange. His start date at the $360 billion California Public Employees' Retirement System, Sacramento, has yet to be determined.

Mr. Meng, who will start at a salary of $707,500 with an incentive range of zero to 150%, could not be reached for comment.

The 48-year-old, who served as senior portfolio manager in asset allocation at CalPERS before he left to join SAFE in 2015, will replace CIO Theodore Eliopoulos, who will leave at the end of the year for family reasons.

His hiring was announced on Sept. 24 during an investment committee meeting.

Two days later — after the board decided to give Ms. Frost a 4% raise to $330,720 for fiscal year 2019 and a 26.7% bonus for fiscal year 2018 — state Treasurer John Chiang, a board member, called for an independent third-party review of the CEO. Mr. Chiang voted in favor of the pay raise and bonus.

The controversy centers on allegations raised in earlier published reports that Ms. Frost made misleading statements that she was pursuing dual degrees in administration when she was hired two years ago.

Board President Priya Mathur on Sept. 26 released a statement that a review was unnecessary and voiced support for Ms. Frost.

Board members, meanwhile, are standing firmly behind Ms. Frost, and said they support Mr. Meng's hiring.

Managing risk

Declining to discuss the controversy, Ms. Frost said in an interview that she was impressed with Mr. Meng's focus on risk, and that he came to the job interview with a five-year plan for CalPERS. The pension fund is 71% funded and has a 7% assumed rate of return, so there is "risk in our future," Ms. Frost said when Mr. Meng's appointment was announced. "He spoke about risk in the next five years and what it would look like here."

He supports allocating a risk budget to ensure CalPERS is compensated for the risks it is taking as well as a liability-focused asset allocation, she said. His five-year plan also includes focusing on total fund performance and basing incentives for the investment staff on total fund performance rather than individual asset classes, she added.

The idea is to shift CalPERS' culture to encourage collaboration and move away from a team slotted into silos along asset class lines, she said.

He also wants to create a strategy for CalPERS' investment office to use the data it receives to generate returns, Ms. Frost said.

And he's on the same page with moves to improve liquidity of the fund overall, she said. Over the past two and a half years, CalPERS added liquidity by shortening to 20 years from 30 years the period over which actuarial gains and losses are amortized; backed a state law that directed the state to pay an additional $6 billion in required pension contributions for fiscal year 2018; and lowered its discount rate to 7% from 7.5% in 2016.

Ms. Frost said she could not discuss specifics of his track record as deputy CIO at SAFE, which manages China's foreign exchange assets, foreign assets and gold reserves, because of a non-disclosure agreement. She did say that for Mr. Meng's first two years at SAFE he acted as CIO without holding the title.

Ms. Frost added that SAFE had strong investment performance during his tenure, but she didn't provide specifics.

She also said she wanted someone who would work well with members of the investment team and who would gain immediate confidence of the board.

But she could not say what role Mr. Meng would play in filling the 25 open investment staff positions because his start date has yet to be determined. CalPERS has an investment staff of about 400.

In the meantime, CalPERS has hired executive search firm Ridgeway Partners to help find a managing investment director of private equity, she said. That job has been vacant since the April 2017 departure of Real Desrochers. Curtis Ishii, managing investment director, fixed income, retired on May 8. CalPERS has not hired a search firm to help in filling that position.

Mr. Eliopoulos said he plans to fill the open positions before he leaves the pension fund at the end of 2018.

Mr. Meng isn't new to CalPERS. He joined the California fund in December 2008 as a portfolio manager in global fixed income, quantitative research/analysis, a position now called investment manager. In October 2011, he was promoted to senior portfolio manager in asset allocation, a position now called investment director. He left CalPERS in 2015 to take the job in China.

Quant skills

Sources said Mr. Meng was known as being skilled in quantitative analysis and performance attribution during his first stint at CalPERS.

Ms. Frost said she expects Mr. Meng to continue working on including tactical asset allocation strategies when he returns to CalPERS. He also "developed strong relationships" during his time in China and will help create a strong strategy for the fund's investments in that county, she added.

Mr. Eliopoulos said CalPERS now is investing opportunistically in Asia.

When CalPERS conducts its asset allocation review in 2019, tactical asset allocation and active risk will be part of the discussion, said Elisabeth Bourqui, CalPERS' chief operating investment officer, who joined the system in May. Both Ms. Bourqui and Mr. Meng are expected to spearhead those efforts.

Mr. Eliopoulos said he was "thrilled" with the selection of Mr. Meng. "CalPERS will have strong leadership with Ben and Elisabeth."

J.J. Jelincic, a former CalPERS board member who suggested Mr. Meng to Ms. Frost, said that as an investment manager, Mr. Meng is analytical and focused on risk-adjusted returns but he is not doctrinaire.

"He could be persuaded and he could be persuasive," Mr. Jelincic said. He is not "touchy-feely," Mr. Jelincic added. "He's more quant-focused."

At the same time, questions persist about whether Ms. Frost misrepresented her educational pursuits.

A news release was issued in July 2016 when Ms. Frost was hired and her CalPERS biography included a statement that she is "pursuing dual bachelor's and master's degree in public administration from Evergreen State College." CalPERS has since acknowledged that was an inaccurate statement.

The inaccuracies were the result of erroneous information in a candidate report provided to the board by executive search firm Heidrick & Struggles, and both the news release and the biography were based on that report, said Wayne Davis, CalPERS spokesman, who drafted the release.

Heidrick & Struggles declined comment.

Discussed background

Mr. Davis said Ms. Frost had discussed her educational background as well as her aspirations with the search firm, which resulted in the error in the candidate report.

Ms. Frost did not notice the inaccuracies until a year later, and requested the information be removed, Mr. Davis said.

But the biography was not corrected until the inaccuracies appeared in the press this year, he said.

"We have a great hire in the CIO (Mr. Meng) that's coming on board," said Bill Slaton, board member and chairman of the performance, compensation and talent management committee in a "personal statement" at the Sept. 26 board meeting. He made the comment after the board approved the committee recommendation to give Ms. Frost a raise and bonus.

"I think the committee feels we have the right team here and that we're very excited about our future going forward in serving our members and retirees," Mr. Slaton said.